Shareholder Loans: The CRA Rules Owners Get Wrong

It feels harmless. You own the company, the company has cash, and you need money for something personal — so you take it out as a loan and intend to pay it back. No salary, no dividend, no immediate tax. That instinct is exactly where Alberta and BC owners get into trouble. The Canada Revenue Agency has specific rules for loans from a corporation to its shareholders, and getting them wrong can turn "borrowed money" into fully taxable income — or saddle you with a deemed interest benefit you never saw coming.

This post explains the two rules that matter most: the income-inclusion rule under subsection 15(2), and the deemed interest benefit under section 80.4.

Rule one: the loan can become taxable income — subsection 15(2)

The starting point is blunt. Under ITA subsection 15(2), a loan from a corporation to its shareholder is included in the shareholder's income — taxed as if it were income in the year the loan was made.

That is the default. The reason is straightforward: without this rule, owners could indefinitely extract corporate profits as "loans" and never pay personal tax on them. So the Act treats the loan as income unless you fit within a relieving rule.

Source: CRA Income Tax Folio S3-F1-C1, Shareholder Loans and Debts.

The relief: repay within one year — subsection 15(2.6)

The most important relieving rule is the repayment window. Under subsection 15(2.6), the loan is not included in your income if it is repaid within one year after the end of the corporation's taxation year in which the loan was made — and the repayment is not part of a series of loans and repayments.

Both conditions matter, and the second is the one owners trip over.

The timing. It is one year after the corporation's year-end, not one year after you took the money. If your corporation has a December 31 year-end and you borrow in February 2026, the loan was made in the year ending December 31, 2026, so you generally have until the end of 2027 to repay — a generous window if you plan for it, but a hard line if you forget.

The series trap. You cannot satisfy the rule by repaying the loan just before the deadline and then re-borrowing the same money days later. CRA looks through arrangements that are part of a series of loans and repayments. A loan repaid only on paper, with the funds going back out shortly after, will not qualify for relief — the substance, not the calendar entry, is what counts.

There are also exceptions to the income-inclusion rule beyond the repayment window — for example, loans made in the ordinary course of a money-lending business, and certain bona fide employee loans that meet the conditions in the Act. These are genuine carve-outs, but they are narrow and fact-specific; do not assume you fit one without confirming.

Source: CRA Income Tax Folio S3-F1-C1, Shareholder Loans and Debts.

Rule two: the deemed interest benefit — section 80.4

Suppose you stay clear of the income-inclusion rule — the loan is properly structured and repaid within the window. You are still not in the clear, because of a second, separate rule.

If a shareholder loan is interest-free or carries low interest, subsection 80.4(2) creates a deemed interest benefit. In effect, the difference between interest at the CRA prescribed rate and the interest you actually paid is treated as a taxable benefit to you — the value of getting cheap or free use of the corporation's money.

The relief here is simple and within your control: there is no benefit if the shareholder pays interest at least equal to the prescribed rate. Pay interest on the loan at the prescribed rate (and pay it within the timeframe the rules require), and the deemed-benefit problem disappears.

Two practical notes:

• The prescribed rate changes quarterly, so a loan that outlives one rate period needs to track the rate over its life.
• "Low interest" includes "no interest." An informal, interest-free draw from the company is exactly the kind of arrangement that triggers section 80.4 if it is treated as a loan.

Source: CRA Income Tax Folio S3-F1-C2, Deemed Interest Benefit on Shareholder Loans and CRA — Prescribed interest rates.

The two rules together: a checklist

The two rules are independent, and you have to clear both. A loan can escape the income inclusion (because it is repaid in time) and still produce a deemed interest benefit (because it was interest-free). Before you draw money from your corporation as a loan, work through:

1. Document it as a real loan. A board resolution and a written loan agreement, recorded in the books — not an unexplained debit balance discovered at year-end.
2. Plan the repayment date now. Calculate the one-year-after-year-end deadline at the outset and put it in your calendar. Do not rely on a year-end scramble.
3. Avoid the series pattern. Repay from genuine personal funds, not by re-borrowing. CRA looks at substance.
4. Charge interest at the prescribed rate. This neutralizes the section 80.4 benefit and signals a bona fide loan. Track the rate quarter by quarter.
5. Confirm you actually fit any exception you are relying on (money-lending business, bona fide employee loan) before assuming relief applies.

Why owners get this wrong

The recurring failure pattern is informality. An owner takes money throughout the year with no documentation, no loan agreement, and no interest. At year-end the accountant finds a large shareholder debit balance, and now there are two problems at once: a potential income inclusion under subsection 15(2) and a deemed interest benefit under section 80.4. Neither is hard to avoid in advance; both are painful to fix after the fact. The discipline of treating a shareholder loan as a real loan from day one is what keeps it a loan rather than reclassified income.

Key takeaways

• Under subsection 15(2), a loan from your corporation is included in your income unless a relieving rule applies.
• The main relief (subsection 15(2.6)) requires repayment within one year after the corporation's year-end and that the repayment not be part of a series of loans and repayments. Narrow exceptions exist for money-lending businesses and certain bona fide employee loans.
• A separate rule, subsection 80.4(2), creates a deemed interest benefit on interest-free or low-interest loans, measured against the prescribed rate — eliminated only if you pay interest at least equal to that rate.
• You must clear both rules; documentation, a planned repayment date, no re-borrowing, and prescribed-rate interest are what keep a shareholder loan onside.

Shareholder loans are useful and legitimate — when they are structured as real loans. If you have a shareholder balance you are unsure about, RN Canada helps Alberta and BC owners document, time, and price these loans correctly so a planned draw never becomes an unplanned tax bill.